Knowledge is important Entering the world of investment property is certainly exciting, but it’s important to get your head around the nitty-gritty. There’s a lot of jargon thrown around, so it’s worth taking the time to understand it.
From vacancy rates to capital gains, there are various factors at play. They can influence the success of your property investment, so it’s essential to know what to expect and look out for.
Steer clear of empty When you choose where to buy a property, there are a lot of things to think about. One of the most important factors is an area’s vacancy rate.
The higher the vacancy rate, the more properties in the area that are sitting empty without tenants.
An area with a 2 per cent vacancy rate may well be a better place to buy in than a suburb with a 5 per cent vacancy rate.
You should aim for as low a vacancy rate as possible. Vacancy rates aren’t just important when it comes to finding tenants. If you buy in an area with a high vacancy rate, you could find it difficult to sell your property in future years.
Get the money, Honey! In order to invest, you’ll likely need to borrow money from a bank or non-bank lender.
If you’re borrowing money to invest, this is called gearing. This can be positive or negative, depending on how much income the rental property generates against your ongoing costs.
Your lender can explain the finance options available to you when you’re choosing to invest.
The ups and downs of capital gains You have to pay capital gains tax (CGT) in New Zealand on properties purchased after 1 October 2015 and sold within two years, so it’s important to understand this concept if you invest in real estate.
If you choose to sell the property within the two year period, you’ll have to pay tax on the difference between the cost to purchase the asset and the amount you sold it for. The exceptions to the rule are the owners main home, an inherited property or the transfer of the property after a relationship break up.